Negative 13.6% return in 401K for 2018

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Topic Author
arengarajsug88
Posts: 33
Joined: Fri Jan 04, 2019 2:55 pm

Re: Negative 13.6% return in 401K for 2018

Post by arengarajsug88 » Thu Jan 10, 2019 5:42 pm

Elysium wrote:
Wed Jan 09, 2019 11:52 pm
arengarajsug88 wrote:
Wed Jan 09, 2019 7:56 pm
Elysium wrote:
Wed Jan 09, 2019 10:38 am
arengarajsug88 wrote:
Tue Jan 08, 2019 7:46 pm
F150HD wrote:
Tue Jan 08, 2019 6:05 pm
OP - maybe list the funds available to you, it might yield positive suggestions on where to put your $$.
Thank you, please see funds available to me in my 401K plan:

BOND FUNDS:

1. Metropolitan West Total Return Bd Admin (MWTNX)
2. Vanguard GNMA Fund Admiral Shares (VFIJX)
3. PIMCO Commodity Real Ret Strat Instl (PCRIX)

BALANCED FUNDS (STOCKS AND BONDS)

1. Vanguard Balanced Index Fund inst (VBAIX)

DOMESTIC STOCK FUNDS

1. Cohen & Steers Instl Realth Shares (CSRIX)
2. Emerald Growth Institutional (FGROX)
3. Janus Henderson Small Cap Value N (JDSNX)
4. Vanguard Equity Income Fund Adm (VEIRX)
5. Vanguard Growth Index Fund Inst (VIGIX)
6. Vanguard Inst Index Fund Inst (VINIX)
7. Vanguard Mid-Cap Index Fund Adm (VIMAX)
8. Vanguard PRIMECAP Fund Admiral (VPMAX)
9. Vanguard Small-Cap Index Fund Adm (VSMAX)

INTERNATIONAL STOCK FUNDS

1. American Funds Europacific Growth R6 (RERGX)
2. Oppenheimer Developing Markets Y (ODVYX)
OP,

You have received a lot of responses already, and I do not wish to confuse you more. The only thing I will offer is a different perspective from what you already heard, and what you are not likely to hear from most people here.

First, is this the only retirement account you have? Are there any Roth IRA accounts? if not, you could establish one and contribute to the max if possible. That is one way to get diversification using funds that aren't available to you in the 401k plan. For instance, I would not use the international funds in your plan, and skip international altogether if you cannot get a better cheaper fund. International diversifiction is not worth the cost, if you have to depend on inferior funds like the ones listed above.

That said, I would consider Vanguard Primecap Fund as one of your core holdings. This is an excellent fund with long track record, and contrary to what you will hear this is one of the very few active managed funds that you can depend on. Obviously there are no guarantees, however, chances are very good you will come out ahead of the market / s&p 500 index with this fund in the next 10-15 years if you can simply buy & hold it.

If you are still skeptical, then I would split 50/50 VPMAX and 500 Index fund.

I would then look at Vanguard GNMA for your bond allocation. This fund is as good as the Total Bond Index, and good core bond holding. Again, something you will not hear often, but its track record speaks for itself.

Lastly, round out with an allocation to mid-caps or small-caps. I would lean towards Vanguard Mid-Cap Index Fund instead of small-cap index, because midcaps are slightly less risky than small caps but deliver almost same results, and it has some large caps also in it, so a good mix.

Given that, I would propose:
80% equity
20% bonds

30% Primecap VPMAX
30% Instl Index VINIX
20% Mid-cap Index VIMAX
20% GNMA VFIJX

Go for a Roth IRA account for Intl diversification.
Thank you, for your detailed insights! Much appreciate it!

I also have a Roth IRA account, have around $3k in it, all contributed in 2018. Started my Roth IRA only last year. Below are my Roth IRA stocks:

1. SCHWAB U S DIVIDEND EQUITY ETF, SCHD, Quantity 2, current balance $96.26
2. VANGUARD INFORMATION TECHNOLOGY ETF, VGT, Quantity 5, current balance $855.75
3. VANGUARD TOTAL STOCK MARKET ETF, VTI, Quantity 7, balance $925.12
4. VANGUARD HIGH DIVIDEND YIELD ETF, VYM, Quantity 11, balance $879.45

All of these 4 ETFs are trading at a lesser value than I originally bought them for, so I remained skeptic and did not max-out my Roth IRA limit of $5,500 for 2018. Are these ETFs good in a Roth IRA? Are there better options (stocks or ETFs) in Vanguard Roth IRA that I could use and do you suggest to max-out my Roth IRA for 2019? Thank you.
4 funds splitting 3k is too much. In fact, I even 30k for that matter. You should contribute the maximum to Roth IRA every year you are eligible to, because that space is too precious to give up. You can always get your contributions out without penalty and taxes in case of extreme situation, as long as at least 5 years have passed.

I would recommend you keep only 1 fund in the beginning in Roth IRA, and later as the account grows you could add another one if needed.

Out of the 4 ETFs you have listed, apart from the Technology sector ETF which is concentrated in tech, all others are good core holdings. Although I would avoid holding two dividend paying funds and a total stock fund, there is just too much overlap.

I would hold on to these funds until they recover back the losses, because these are good core holdings you can do that. After that, I would sell it once they become profitable in exchange for an International fund you may want to add for diversification. If you like lower volatility of Dividend Growth combined with international allocation then you can look at something like VIGI Vanguard International Dividend Appreciation Index ETF.

This would round out your portfolio with good low cost core holdings that you can set it and forget for many years to come.
Very good idea! Will consider VIGI, thanks much!

Topic Author
arengarajsug88
Posts: 33
Joined: Fri Jan 04, 2019 2:55 pm

Re: Negative 13.6% return in 401K for 2018

Post by arengarajsug88 » Thu Jan 10, 2019 7:10 pm

Elysium wrote:
Wed Jan 09, 2019 11:52 pm
arengarajsug88 wrote:
Wed Jan 09, 2019 7:56 pm
Elysium wrote:
Wed Jan 09, 2019 10:38 am
arengarajsug88 wrote:
Tue Jan 08, 2019 7:46 pm
F150HD wrote:
Tue Jan 08, 2019 6:05 pm
OP - maybe list the funds available to you, it might yield positive suggestions on where to put your $$.
Thank you, please see funds available to me in my 401K plan:

BOND FUNDS:

1. Metropolitan West Total Return Bd Admin (MWTNX)
2. Vanguard GNMA Fund Admiral Shares (VFIJX)
3. PIMCO Commodity Real Ret Strat Instl (PCRIX)

BALANCED FUNDS (STOCKS AND BONDS)

1. Vanguard Balanced Index Fund inst (VBAIX)

DOMESTIC STOCK FUNDS

1. Cohen & Steers Instl Realth Shares (CSRIX)
2. Emerald Growth Institutional (FGROX)
3. Janus Henderson Small Cap Value N (JDSNX)
4. Vanguard Equity Income Fund Adm (VEIRX)
5. Vanguard Growth Index Fund Inst (VIGIX)
6. Vanguard Inst Index Fund Inst (VINIX)
7. Vanguard Mid-Cap Index Fund Adm (VIMAX)
8. Vanguard PRIMECAP Fund Admiral (VPMAX)
9. Vanguard Small-Cap Index Fund Adm (VSMAX)

INTERNATIONAL STOCK FUNDS

1. American Funds Europacific Growth R6 (RERGX)
2. Oppenheimer Developing Markets Y (ODVYX)
OP,

You have received a lot of responses already, and I do not wish to confuse you more. The only thing I will offer is a different perspective from what you already heard, and what you are not likely to hear from most people here.

First, is this the only retirement account you have? Are there any Roth IRA accounts? if not, you could establish one and contribute to the max if possible. That is one way to get diversification using funds that aren't available to you in the 401k plan. For instance, I would not use the international funds in your plan, and skip international altogether if you cannot get a better cheaper fund. International diversifiction is not worth the cost, if you have to depend on inferior funds like the ones listed above.

That said, I would consider Vanguard Primecap Fund as one of your core holdings. This is an excellent fund with long track record, and contrary to what you will hear this is one of the very few active managed funds that you can depend on. Obviously there are no guarantees, however, chances are very good you will come out ahead of the market / s&p 500 index with this fund in the next 10-15 years if you can simply buy & hold it.

If you are still skeptical, then I would split 50/50 VPMAX and 500 Index fund.

I would then look at Vanguard GNMA for your bond allocation. This fund is as good as the Total Bond Index, and good core bond holding. Again, something you will not hear often, but its track record speaks for itself.

Lastly, round out with an allocation to mid-caps or small-caps. I would lean towards Vanguard Mid-Cap Index Fund instead of small-cap index, because midcaps are slightly less risky than small caps but deliver almost same results, and it has some large caps also in it, so a good mix.

Given that, I would propose:
80% equity
20% bonds

30% Primecap VPMAX
30% Instl Index VINIX
20% Mid-cap Index VIMAX
20% GNMA VFIJX

Go for a Roth IRA account for Intl diversification.
Thank you, for your detailed insights! Much appreciate it!

I also have a Roth IRA account, have around $3k in it, all contributed in 2018. Started my Roth IRA only last year. Below are my Roth IRA stocks:

1. SCHWAB U S DIVIDEND EQUITY ETF, SCHD, Quantity 2, current balance $96.26
2. VANGUARD INFORMATION TECHNOLOGY ETF, VGT, Quantity 5, current balance $855.75
3. VANGUARD TOTAL STOCK MARKET ETF, VTI, Quantity 7, balance $925.12
4. VANGUARD HIGH DIVIDEND YIELD ETF, VYM, Quantity 11, balance $879.45

All of these 4 ETFs are trading at a lesser value than I originally bought them for, so I remained skeptic and did not max-out my Roth IRA limit of $5,500 for 2018. Are these ETFs good in a Roth IRA? Are there better options (stocks or ETFs) in Vanguard Roth IRA that I could use and do you suggest to max-out my Roth IRA for 2019? Thank you.
4 funds splitting 3k is too much. In fact, I even 30k for that matter. You should contribute the maximum to Roth IRA every year you are eligible to, because that space is too precious to give up. You can always get your contributions out without penalty and taxes in case of extreme situation, as long as at least 5 years have passed.

I would recommend you keep only 1 fund in the beginning in Roth IRA, and later as the account grows you could add another one if needed.

Out of the 4 ETFs you have listed, apart from the Technology sector ETF which is concentrated in tech, all others are good core holdings. Although I would avoid holding two dividend paying funds and a total stock fund, there is just too much overlap.

I would hold on to these funds until they recover back the losses, because these are good core holdings you can do that. After that, I would sell it once they become profitable in exchange for an International fund you may want to add for diversification. If you like lower volatility of Dividend Growth combined with international allocation then you can look at something like VIGI Vanguard International Dividend Appreciation Index ETF.

This would round out your portfolio with good low cost core holdings that you can set it and forget for many years to come.
Thank you for all your time and explanation! Much appreciate it!

Topic Author
arengarajsug88
Posts: 33
Joined: Fri Jan 04, 2019 2:55 pm

Re: Negative 13.6% return in 401K for 2018

Post by arengarajsug88 » Thu Jan 10, 2019 7:12 pm

MotoTrojan wrote:
Thu Jan 10, 2019 12:39 am
Target retirement in Roth (depending on desired AA), S&P500 in 401K (VINIX) and let it ride. Hands off and gets you really close to the above mentioned AA.
Thank you!

Topic Author
arengarajsug88
Posts: 33
Joined: Fri Jan 04, 2019 2:55 pm

Re: Negative 13.6% return in 401K for 2018

Post by arengarajsug88 » Thu Jan 10, 2019 7:13 pm

jharkin wrote:
Thu Jan 10, 2019 7:58 am
You got tons of good advice above ^^^ Its normal, you ill recover.. In fact you probably will forget about this one which was just a minor blip so far.

As you will learn the more you read around here, most moves you might try to make to avoid such situations are actually counterproductive in the long run - there is a reason "Stay the course" is the mantra of this forum.

When I was 30 it was just a couple years before the great recession happened and everyone I knew was loosing over 50%. And that was after having lived though loosing half my savings in the dot com crash only a few years prior... I survived both and my savings have grown significantly since then. Yours will too :sharebeer
Thank you for the positive words of encouragement!

Topic Author
arengarajsug88
Posts: 33
Joined: Fri Jan 04, 2019 2:55 pm

Re: Negative 13.6% return in 401K for 2018

Post by arengarajsug88 » Thu Jan 10, 2019 7:15 pm

ruralavalon wrote:
Thu Jan 10, 2019 4:02 pm
arengarajsug88 wrote:
Tue Jan 08, 2019 2:51 pm
Hello folks,

I am new to Bogle heads. I am Male, 30, have around 40K in my Vanguard 401K with my employer. I do not have target retirement fund, but it is goes into a variety of mutual funds. The first 8 months of 2018 were good, but the last 4 months made me have a -13.6% return causing my assets to drop significantly. Have been saving last 3 years in my 401k, and in 2018 maxed-out my 401K contribution limit, contributing $18,500. My allocation is 93% stocks and 7% bonds.

What could I have done to prevent this negative return? . . .
Consider a larger bond allocation using a diversified bond fund with a low expense ratio. In your 401k that would be Vanguard GNMA Fund (VFIJX) ER 0.11%.


Asset allocation.
At age 30 I suggest an asset allocation with around 20% in bonds. Please see the wiki article "Asset Allocation".

I agree with the suggestion to use around 20-30% of stocks in international stocks. Historically that would have captured almost all of the diversification benefit from adding international stocks to the mix.

This works out to about 20% bonds, 20% international stocks,and 60% domestic stocks. Asset allocation is a very personal decision, which you must make based on your own ability, willingness and need to take risk.


arengarasjug88 wrote: . . . Is this negative return expected or should I have made wiser investing decisions? . . .

2018 was simply a bad year for stock investments, bond funds had smaller losses or even small gains. Minus 13.6% sounds about what you could expect in 2018 from a 93/7 stock/bond allocation.


arengarasjug88 wrote: . . . What Vanguard mutual funds are best to invest for 2019? I am trying to post my funds and graph image from my 401K Vanguard so you can see the funds and allocation details but cannot seem to post it in the forum. Any guidance is appreciated!
Please see the wiki article "Three-fund Portfolio" and the forum discussion "The Three-fund Portfolio".

It's not possible to predict what will do "best" in any particular year.

Pick an asset allocation (stock/bond mix) that will suit your personal ability, willingness and need to take risk. Asset allocation is a very personal decision, which you must make based on your own ability, willingness and need to take risk.


Fund selection and placement.
In selecting funds to use strive for a combination of both broad diversification (to decrease risk) and low expense ratios (to increase net return).

It's usually better to coordinate investments among all accounts, treating all accounts together as a single unified portfolio, rather than try to put all elements of the desired asset allocation in each account. This lets you avoid having to use good well diversified, but more expensive, funds in your 401k like American Funds EuroPacific Growth R6 (RERGX) ER 0.49%.

I suggest that you switch both the existing balance and new contributions to your 401k ($40k, 93% of total portfolio) to these three funds:
1) 60%, Vanguard Institutional Index Fund (a S&P 500 index) (VINIX) ER 0.04%;
2) 13%, American Funds EuroPacific Growth Fund R6 (both developed and emerging markets) (RERGX) ER 0.49%; and
3) 20%, Vanguard GNMA Fund Admiral Shares (VFIJX) ER 0.11%.


Domestic stocks.
In my opinion a S&P 500 index fund (like Vanguard Institutional Index Fund in your 401k) is good enough by itself for the domestic stock allocation. A S&P 500 index fund covers 81% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S.companies. In the 26 years since the creation of the first total stock market index fund , the two types of funds have had almost identical performance.

I would not hesitate to use Vanguard Institutional Index Fund by itself for domestic stocks in a 401k which lacks a total stock market index fund.


International Stocks.
American Funds EuroPacific Growth Fund R6 (RERGX) ER 0.49% is a good, actively managed, well diversified, international stock fund with a moderate expense ratio.

I would not hesitate to use American Funds EuroPacific Growth Fund in a 401k which lacks a good international stock index fund.

I suggest that you switch both the existing balance of your Roth IRA ($3k, 7% of total portfolio) and the new contributions to your Roth IRA to Vanguard Total Stock Market Index Fund. Then use American Funds EuroPacific Growth in your 401k for the rest (13%) of your international stock allocation.


Bonds.
In my opinion Vanguard GNMA Fund is by far the best bond fund choice offered in your 401k. Metropolitan West Total Return Administrative Class (MWTNX) ER 0.78% is a good, well diversified, activity managed bond fund, but has a fairly high expense ratio.


Accounts and contributions.
If your Roth IRA is elsewhere, then I suggest rolling it over to a Roth IRA at Vanguard so you can use Vanguard Total Stock Market Index Fund. Just call Vanguard and they will do most the work on the rollover.

It's good to see that you have been making the maximum annual contributions to your 401k, in 2019 the annual maximum is $19k.

In the future I suggest increasing Roth IRA contributions tothe annual maximum, which in 2019 is $6k.

. . . . .

I suggest that you read one or two books on general investing. Please see the wiki article "Books: Recommendations and Reviews".

If you have any questions just ask.

I hope that this helps.
That definitely helps! Thank you for investing a lot of your time in writing all these details!

Topic Author
arengarajsug88
Posts: 33
Joined: Fri Jan 04, 2019 2:55 pm

Re: Negative 13.6% return in 401K for 2018

Post by arengarajsug88 » Thu Jan 10, 2019 7:16 pm

jalbert wrote:
Thu Jan 10, 2019 4:16 pm
arengarajsug88 wrote:
Tue Jan 08, 2019 2:51 pm
Hello folks,

I am new to Bogle heads. I am Male, 30, have around 40K in my Vanguard 401K with my employer. I do not have target retirement fund, but it is goes into a variety of mutual funds. The first 8 months of 2018 were good, but the last 4 months made me have a -13.6% return causing my assets to drop significantly. Have been saving last 3 years in my 401k, and in 2018 maxed-out my 401K contribution limit, contributing $18,500. My allocation is 93% stocks and 7% bonds.

What could I have done to prevent this negative return? Is this negative return expected or should I have made wiser investing decisions? What Vanguard mutual funds are best to invest for 2019? I am trying to post my funds and graph image from my 401K Vanguard so you can see the funds and allocation details but cannot seem to post it in the forum. Any guidance is appreciated!
What funds are you holding?

Some 2018 returns...

Vtsax ... -5.17% (total US stocks)
Vtiax ... -14.43% (total int’l stocks)
Vbtlx ... -.03% (total US bonds)
Vasgx ... -6.9% (Lifestrategy Aggressive Growth)

Nobody knows which funds will perform the best, but you can be guaranteed not to underperform the broad market by holding the broad market. You probably want to rebalance back to asset allocation. You could probably accomplish that and also avoid underperforming the market in the future by moving to a Target Retirement or LifeStrategy fund or by holding the first three funds in the list above weighted at say 62% vtsax, 31% vtiax, 7% vbtlx.
The funds I hold were listed above in my earlier posts. Thanks for your inputs!

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